As part of its growth and expansion strategy, Sonae Sierra continued to develop, during the third quarter of 2007, a significant portfolio of projects in different stages, and continued to actively seek new business opportunities in markets where the company is currently present and in new markets.
The most significant events of the third quarter include the inauguration of two new shopping centers: the first was Alexa, a shopping and leisure center in Berlin, which represented an investment of 290 million, and the second was 8ª Avenida, in S. João da Madeira, which represented an investment of 54.3 million.
In terms of new projects, Sonae Sierra presented Pantheon Plaza to the public, which will be the largest shopping and leisure center in Larissa, Greece, scheduled to be inaugurated in 2008 and representing an investment of about 76.3 million. In Brazil, the Company has presented the Manauara Shopping project, in Manaus, an investment of 67 million, scheduled to be inaugurated in the Spring of 2009.
Also during this quarter, Sonae Sierra announced that its partnership with ING Real Estate for the development of the Colombo Towers is now part of a consortium with Iberdrola/Caixa Geral de Depósitos. This new consortium will invest 80 million in the project, and the first Tower should be finished in the last quarter of 2008. Also in partnership with ING Real Estate, Sonae Sierra has announced the refurbishment of Centro Colombo (Lisbon) an investment of 31 million euros in renovation works to mark its 10th anniversary.
Finally, Sonae Sierra won this quarter the prestigious Elite Lombard Award in Italy, distinguishing the company's strategy in the Italian market.
Financial position and Results
Sonae Sierra obtained a consolidated Net Profit of 206.6 million in the first nine months of 2007, an increase of 33% on the same period of 2006.
The Direct Net Profit was 64.3 million (up 18%) and the Indirect Net Profit reached 142.3 million as a result of improved valuations and the value created in the centres inaugurated in the period.
Sonae Sierra's Net Asset Value (NAV) per share was 49.75 euros on September 30th 2007 versus 45.82 euros on December 31st 2006 - a growth of 8.6% on the nine months period.
Value Metrics
Up to now, we have emphasized the Net Asset Value as the key metric for the valuation of the Company. NAV is, of course, the key metric when valuing a portfolio of properties. The problem with this approach is that it does not cover the service activities undertaken by the Company, namely development, asset management and property management.
In the past, it could be argued that it was difficult to establish true arm's length prices since the services were rendered, in most cases, to Group companies. With the establishment of the Sierra Fund, that problem was solved.
The Sierra Fund has an obligation, under certain conditions, to acquire the properties developed by Sierra Developments at a price corresponding to Open Market Value and furthermore, Sierra companies deliver asset management and property management services to the Fund.
Sonae Sierra believes that, with these conditions in place, the service activities of the Company (development, asset and property management) can now be valued independently of the valuation of the property portfolios held by the Company.
1. Net Asset Value
NAV (x €000) of the three portfolios held by the Company:
- Investments (the properties in operation in Europe): 1.003.911
- Developments (the properties under development in Europe): 323.764
- Brazil (the properties held in Brazil): 168.054
- Cash & others: 121.750
- Total: 1.617.480
There is a residual amount corresponding to Cash plus other Assets and Liabilities associated with the other business activities. These portfolios are valued on the basis of open-market values as determined by an independent valuer.
These figures should constitute the basis for the valuation of the property portfolios held by the Company.
